PREFERENCE SHARES - NBFC

CAN A BASE LAYER NBFC ISSUE PREFERENCE SHARES? 

IF YES, THEN WHICH TYPE?

 

 

Replies (2)
Quick Summary
Yes, a base layer NBFC can issue preference shares, but only specific types like non-convertible or redeemable ones. Issuing these shares requires approval from the Reserve Bank of India (RBI) and strict adherence to their guidelines, including the NBFC (Issuance of Preference Shares) Directions, 2016. Preference shares offer a higher claim than equity but rank below debt, and redeemable ones must be repaid within a set timeframe.

Yes, a base layer NBFC (Non-Banking Financial Company) can issue preference shares. However, there are certain restrictions and guidelines that apply:

1. _Type of Preference Shares_: NBFCs can issue only non-convertible preference shares (NCPs) or redeemable preference shares. 

2. _Approval_: The issue of preference shares requires approval from the Reserve Bank of India (RBI).

 3. _Compliance_: NBFCs must comply with the RBI's guidelines and regulations, including the NBFC (Issuance of Preference Shares) Directions, 2016.

4. _Priority_: Preference shares have a higher claim on assets and dividends than equity shares but rank below debt.

 5. _Redemption_: Redeemable preference shares must be redeemed within a specified period, typically 5-10 years.

6. _Dividend_: Dividends on preference shares are tax-deductible, but NBFCs must ensure compliance with the applicable tax laws. 

IS THERE A LIMIT TO ISSUE PREFERENCE SHARES IN ABOVE CASE? 

 

AND CAN YOU SHARE THE LINK OF THESE MASTER DIRECTIONS?

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